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spk06: Good morning and welcome to Biotechni Earnings conference call for the fourth quarter of fiscal 2022. At this time, all participants have been placed in listen-only mode and the call will be open for questions following management's prepared remarks. During our Q&A session, please limit yourself to one question and a follow-up. I would now like to turn the call over to David Clare, Biotechni's Vice President, Investor Relations and Corporate Development. Please go ahead.
spk09: Good morning, and thank you for joining us. On the call with me this morning are Chuck Cometh, Chief Executive Officer, and Jim Hippel, Chief Financial Officer of Biotechni. Before we begin, let me briefly cover our safe harbor statement. Some of the comments made during this conference call may be considered forward-looking statements, including beliefs and expectations about the company's future results, as well as the potential impact of the COVID-19 pandemic on our operations and financial results. The company's 10-K for fiscal year 2021 identifies certain factors that could cause the company's actual results to differ materially from those projected in the forward-looking statements made during this call. The company does not undertake to update any forward-looking statements because of any new information or future events or developments. The 10-K, as well as the company's other SEC filings, are available on the company's website within its investor relations section. During the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance. Tables reconciling these measures to most comparable GAAP measures are available in the company's press release issued earlier this morning on the Biotechnique Corporation website at www.bio-technique.com. Separately, we will be presenting at the Wells Fargo, Baird, and Morgan Stanley Healthcare conferences in September. We look forward to connecting with many of you at these upcoming conferences. I will now turn the call over to Chuck.
spk08: Thanks, Dave, and good morning, everyone. Thank you for joining us for our fourth quarter conference call. We had a tremendous finish to our fiscal 2022 as our 14% organic growth for the fourth quarter capped a year where we delivered 17% organic growth for the full fiscal year. In our fiscal 2022, we surpassed an important milestone as we exceeded $1 billion, actually $1.1 billion, in revenue for the first time in our corporate history. These strong results were delivered in the face of the most challenging comp the company has faced since I joined in 2013, and the impact of a longer than expected COVID-related shutdown in China. I'm extremely proud of the global team's strong execution in this dynamic environment. Some of the highlights in the quarter include continued strength in our biologics instrument portfolio, where we delivered over 30% growth for the seventh consecutive quarter, ongoing traction with our cell and gene therapy workflow initiatives, a return to double-digit growth in our spatial biology business, as well as another consecutive record-setting quarter for our ExoDx prostate test. We remain incredibly well-positioned and underpenetrated in some of the fastest-growing life science tools and diagnostics markets, And our portfolio of proteomic, genomic, and diagnostic products continue to deliver the solutions necessary to drive scientific discoveries and ultimately improve health care. Given the inflationary environment we are all dealing with, let's briefly discuss how we are successfully navigating these challenges. As a reminder, approximately 80% of our revenue mix is consumables, and encouragingly, given their biological nature, these tend to have more modest raw material costs. Approximately 10% of our sales are instrumentation, where we do have higher input costs, but still maintain gross margins in line with corporate averages. We have been strategically implementing price increases throughout our portfolio to offset our exposure to rising costs, including labor, and we'll continue to pull this lever going forward. Speaking of labor... We made significant progress on our human capital initiatives in the quarter. Encouragingly, we are seeing signs of an improving labor market as some of the headwinds we faced in recent quarters to attract and retain talent appear to be subsiding. In fiscal 2022, we added over 400 individuals to the team and have grown to over 3,000 biotechnology team members. These net headcount additions work across the organization as we strengthen the commercial, technical, and corporate team at all levels. We will continue to hire as we execute our strategic growth initiatives going forward, and I'm very encouraged with the recent progress on this front. Now let's discuss the specifics of our performance this quarter, starting with our geographies and end markets. From a global perspective, we experienced robust growth across geographies with the exception of China. Our North American revenue grew in the upper teens for both the quarter and our fiscal year. In Europe, we finished on a very strong note as we grew in the mid-teens for both the quarter and the fiscal year. For China, first I'd like to recognize the relentless efforts of the team. Our China-based team successfully petitioned to be one of the initial companies permitted to return to work as our products were deemed to be critical to the country. Once we were allowed back in our Shanghai-based warehouse that serves as a distribution hub, To all of our China-based customers, our dedicated team literally lived in the facility to ensure we were able to begin supplying the research community with proteomic reagents, analytical tools, and spatial biology products. These COVID-related lockdowns lasted longer than expected in several large cities. Overall, organic revenue in China declined low single digits for the quarter. These important Chinese markets started the reopening process in June, and we saw a nice bounce back in revenue, especially in our research reagents business. The strong June performance is encouraging, and we look forward to returning to our historical growth trajectory in this geography. Once again, our biopharma end market remained very strong, growing over 20% globally for both the quarter and the fiscal 2022. Sales in our academic end market increased in the upper single digits for the quarter and the mid single digits for the fiscal year. We are seeing signs of continued improvement in our U.S. academic end market. as research budget clarity and increased NIH outlays are benefiting spending on our research reagents, proteomic analytical tools, and spatial biology solutions. Now let's discuss our growth platform, starting with our protein sciences segment, where we grew organically by 16% for the quarter and 19% for the fiscal year. During the quarter, we advanced our cell and gene therapy initiatives as our reagents, media, technology, and workflow solutions continue to deliver the necessary solutions to progress therapy development and clinical trials. Before we get into the numbers, I'd like to highlight an emerging cell therapy application called Regenerative Medicine that is garnering significant investment in clinical trial activity, which in turn is driving growth in our technologies and products enabling these workflows. His background, regenerative medicine or RegenMed, leverages stem cells or their derivatives to promote the repair response of diseased, dysfunctional, or injured tissues. Stem cells are unique as they can be induced to differentiate into any cell type. For example, muscle, heart, pancreatic, nerve, and blood cells. This functionality has spawned robust biopharma activity to use stem cells as a treatment and potential cure for many diseases and chronic conditions, including diabetes, tissue repair, spinal cord injury, chronic wound healing, and others. This increased activity is sparking demand across our portfolio of cell therapy products and technologies, including reagents, assays, media, instruments, and spatial biology products. Our portfolio of GMP proteins includes 19 cytokines, including 11 that are only available from Biotechni, that are key to scaling these RegenMed activities. This interest in RegenMed is also acting as a significant tailwind for our matrix products, as these provide structural support for cells and play an important role in establishing tissue organization by influencing cell adhesion, proliferation, migration, and differentiation. Our portfolio of Matrix products increased over 110% in the quarter and are quickly becoming significant contributors to our burgeoning cell and gene therapy business. Specifically for our GMP protein business, during the quarter we transitioned two additional GMP proteins to our state-of-the-art GMP protein dedicated manufacturing facility. Following these latest launches, we are now manufacturing five GMP proteins in this new facility at the scale and capacity necessary to meet current forecasted demand. Overall, our portfolio of cell and gene therapy products, technologies, and solutions increased over 50% for fiscal 2022. Now let's discuss performance of our research reagent portfolio, including our broad catalog of RUO proteins and antibodies. Once again, our brand reputation targeted new product introductions, marketing strategy, and execution growth above market growth as our research reagents increased low teens for the quarter and mid-teens for fiscal 2022. During the fiscal year, we added approximately 1,000 new R&D systems, branded proteins, antibodies, and small molecules, including research reagents strengthening our core portfolio in immunology, immune oncology, and targeted protein degradation. Shifting to our proteomic analytical tools, where the team delivered mid-teens growth for the quarter and high teens growth for the fiscal year, once again our biologics platform, Marie's, led the way, increasing worth 35% in the quarter. This marks the seventh consecutive quarter of above 30% growth for this platform, as we continue to see strong demand from protein therapeutics, gene therapy, and CRO, CDMO customers. We recently dramatically improved maurice's speed with the launch of the Turbo CESDS cartridge. This new cartridge delivers a 400% throughput increase compared to legacy cartridges, enabling higher speed and high resolution analysis of protein size and purity across all stages of bioprocess development, as well as regulated areas, including quality control. Separately, a multi-company study published in the Journal of Electrophoresis showed excellent comparability of maurice to its predecessor instrument, ICE3. As background, we launched Marese in 2016 as the next generation system in our ICE instrument portfolio. Multiple biopharma companies have requested comparability data between ICE 3 and Marese prior to upgrading, and we anticipate this study will help these customers eventually transition to Marese, which offers ease of use and increased functionality compared to the legacy system. Our Simple Western portfolio of automated Western blot solutions continues to gain share as the ease of use, reproducibility, and speed compared to manual methods resonates with both biopharma and academic end users. This growing awareness and utilization of Simple Western is evident when looking at the number of publications citing Simple Western data. As of the end of the quarter, there were over 1,600 cumulative publications citing our Simple Western technology, representing an increase of 12% during the first half of calendar 2022. We view publications as a leading indicator for the growing acceptance of this technology and believe we are positioned for continued growth going forward. Our Simple Western business increased in the mid-teens for the quarter and in the high teens for the fiscal year. We continue to experience strong demand for our SimplePlex automated amino assay platform, ELA, from Salon Gene Therapy customers as our recent assay additions for AAV characterization, PEC293 host cell proteins, and perform drive adoption in both process development and QC release. In fact, we increased the number of CGT customers, cell and gene therapy that is, leveraging Ella in their workflow by over 65% during the fiscal year and anticipate growing interest from additional accounts as we continue to expand our relevant menu offerings. During the quarter, we announced the latest addition to our family of instruments and consumables with the acquisition of Namocel, a leading cell sorting and dispensing company with two instruments currently on the market. Namocel's proprietary instruments and consumables address several high-growth markets, including cell and gene therapy, cell engineering, cell line development, single-cell genomics, antibody discovery, synthetic biology, and rare cell isolation. While NAML Cell's business is relatively small today, it is growing quickly, and we are excited to have this technology and talented team under the biotechnology umbrella. We closed this acquisition on July 1st, and initial integration work is progressing nicely. Lastly, our immunoassay kit business finished the year on a very strong note as this business grew low double digits for both the quarter and the fiscal year. In addition to healthy demand for our ELISA kit, we are increasingly being recognized as the partner of choice for developing luminex assays for our partners to run as lab-designated tests, or LDTs. For example, we recently announced an agreement as the exclusive manufacturer of Nonogen's Biosciences Oncuria Bladder Cancer Diagnostic Panel. This luminex-based multiplex panel combines biotechnics, high-quality reagents, and over 40 years of industry-leading immunoassay experience with Nonogen's diagnostic experience to create a powerful solution to advance bladder cancer treatment strategies. Next, let's discuss our diagnostics and genomics segment, where we grew revenue organically by 8% in the quarter and 10% for the full fiscal year. Our spatial biology business, branded ACD, remains the largest global spatial biology business as our highly sensitive biomarker identification technology with single-cell detection, resolution, and quantification capabilities continues to enable the transition from discovery to translation of research. Spatial biology returned a double-digit growth in the quarter as an improving academic market and the impact of our fortified leadership and North American commercial teams offset a challenging year-over-year comp and the impact of the China shutdown. During the quarter, we achieved a significant milestone for our spatial biology businesses. Our market-leading portfolio crossed 40,000 unique RNA-scope in-situ hybridization probes in over 400 species. We also announced the launch of our CE-IVD-marked RNA-scope ISH probe high-risk HPV assay for use in patients with head and neck cancer to aid in the identification of high-risk human papillomavirus, HPV, for use on the automated Leica Biosystems Bond 3 stainer. With our sales territories occupied, leadership team in place to drive this business forward, and expectations for the U.S. academic market to continue to improve, we are expecting steady improvement in our spatial allergy growth rate in the coming quarters. Moving on to our molecular diagnostics division, let's start with the significant progress our exosome diagnostics business delivered in the quarter. The XODX prostate or epi test continued to benefit from increasing traffic to the physician office for initial or follow-up visits, which in turn drove improving diagnostic testing volumes, including PSA tests, which is a prerequisite for our epi test. This improving physician office environment combined with our digital and traditional marketing initiatives drove almost 70% year-over-year exoDx prostate test volume growth, as testing levels broke a quarterly volume record for the second quarter in a row. The exosome diagnostics team had a strong presence at the American Urological Association, or AUA, conference in May, including the presentation of two posters as well as six in-booth scientific presentations. This was also a great forum to highlight our ongoing partnership with former Baltimore Orioles player, Ironman Cal Ripken Jr., who remains an ambassador and advocate for the ExoDx Prostate Test, which was a part of Cal's own prostate cancer journey. Separately, our Medicare administrative contractor, National Government Services, held a public meeting following our request for reconsideration of our local coverage decision, also known as a LCD. As a reminder, we have made significant progress getting the existing LCD to align with the National Comprehensive Cancer Network, or NCCN, guidelines, although a few key differences remain. Most importantly, the current LCD does not reimburse for repeat usage of our exoDx prostate test or for patients who previously had a negative prostate biopsy. If successful, the reconsidered LCD would remove these limitations, enabling the use of our exoDx prostate test as a surveillance tool. We are encouraged following the opening meeting and are looking forward to the issuance of the final LCD. Continuing the Leclerc Diagnostics, Asurgen had a great quarter as demand for its portfolio of genetic carrier screening kits by Leclerc Diagnostic Controls, as well as initial traction in Europe, drove growth of over 25% in the quarter. In addition to the ongoing geographic expansion, Asurgen has a rich product pipeline, positioning the business for continued growth going forward. Finally, our diagnostics reagents business continues this trend of steady growth in the quarter. The return of patients to the doctor's office is sparking demand for hematology and clinical chemistry tests, which is driving demand for our clinical controls and reagents. Improving patient office visit trends, a full pipeline, and opportunities for additional share gains within our OEM partners set the stage for sustainable growth in our diagnostic reagents business going forward. Most of you probably saw the press release issued this morning announcing the planned leadership transition coming in two years. Following the conclusion of our fiscal 2024, I plan to retire as the CEO of Biotechni and intend to continue to serve as a member of the board of directors. During my tenure, the board and I have built an incredibly strong bench of talented, results-driven leaders that could serve as potential internal replacements. Over the same timeframe, Biotechni has grown into a leading life science tools and diagnostics company, and I have no doubt that our accelerating organic growth profile and sector-leading profitability will attract extremely high-caliber external candidates as well. The board search for a potential replacement has already begun, and we will update you when there is news to share. One thing is certain, with a team now over 3,000 strong and a product portfolio directly aimed at some of the hottest areas of scientific research and diagnostics, Biotechnic is positioned to continue to execute our strategic plan during the next two years under my leadership and beyond. With that, I'll pass the call over to Jim.
spk10: Thank you, Chuck. I will provide an overview of our Q4 and fiscal 2022 financial performance for the total company. provide some additional details on the performance of each of our segments, and then give some thoughts on the fiscal year ahead. Starting with the overall fourth quarter financial performance, adjusted EPS was $2.05 versus $1.88 one year ago, an increase of 9% over last year. Foreign exchange negatively impacted adjusted EPS by 10 cents or minus 5% in the quarter. Gap EPS for the quarter was $1.51 compared to 37 cents in the prior year. The biggest driver for the increase in GAAP EPS was unrealized losses on our investment in chemocentrics in the prior year. Q4 revenue was $288.2 million, an increase of 11% year-over-year on a reported basis and 14% on an organic basis. Foreign exchange translation had an unfavorable impact of 3% to revenue growth. For the full fiscal year 2022, revenue was $1.1 billion, an increase of 19% on a reported basis and 17% on an organic basis. More exchange translation had an unfavorable impact of 1% and acquisitions had a favorable impact of 3%. Moving on to the details of the P&L, total company adjusted gross margin was 73.2% in the quarter compared to 72.7% in the prior year. The increase was driven primarily by favorable business mix and productivity gains, partially offset by the impact of foreign exchange. Adjusted SG&A in Q4 was 27.8% of revenue compared to 25.9% in the prior year, while R&D expense in Q4 was 8.1% of revenue compared to 8% in the prior year. The increase in SG&A was due to progress we made in the quarter building the team to position the company for growth going forward, including adding commercial and technical talent. The resulting adjusted operating margin for Q4 was 37.4%, a decrease of 140 basis points from the prior year period. Excluding the impact of foreign exchange, adjusted operating margin was approximately in line with the prior year. For the full year fiscal year 22, adjusted operating margin was 38.3%, a decrease of 80 basis points year over year. Looking at our numbers below operating income, net interest expense in Q4 was $2.2 million, decreasing $0.8 million compared to the prior year period. The decrease was due to a continued reduction of our bank debt. Our bank debt on the balance sheet as of the end of Q4 stood at $255.9 million. After the quarter, we did draw down approximately $100 million in our existing line of credit for the recently completed Namacel acquisition, which, together with higher floating interest rates, is expected to add approximately $1.4 million to our quarterly interest expense in the first quarter of fiscal year 23. Other adjusted non-operating income was $1.3 million for the quarter compared to $0.7 million in expense in the prior year, primarily reflecting the foreign exchange impact related to our cash pooling arrangements. For gap reporting, other non-operating income includes unrealized losses from our investment in chemocentrics. Moving further down the P&L, our adjusted effective tax rate in Q4 and for the full fiscal year was 21.2%. Turning to cash flow and return of capital, $102.7 million of cash was generated from operations in the quarter, and our net investment in capital expenditures was $13.6 million. Also during Q4, we returned capital to shareholders by way of $58.8 million in stock buybacks and $12.5 million in dividends. We finished the quarter with $40.7 million average diluted shares outstanding. Our balance sheet finished Q4 in a very strong position with $247 million in cash and short-term available for sale investments, keeping our net debt position negligible at the end of the fiscal year. Next, I'll discuss the performance of our reporting segment, starting with the protein sciences segment. Q4 reported sales were $217 million, with reported revenue increasing 13%. Organic growth for the segment was 16%, with foreign exchange having an unfavorable impact of 3%. Within this segment, the growth was very broad-based in nearly all reagent, assay, and instrument platforms. Our portfolio of cell and gene therapy workflow solutions increased over 50%. Our protein simple branded instruments and consumables increased in the upper teens, and our RUO proteomic research reagents grew in the low teens. Operating margin for the protein science segment, excluding the impact of partially owned consolidated subsidiaries, was 45.5%, a decrease of 170 basis points year-over-year, with favorable volume leverage and productivity gains more than offset by the impact of foreign exchange and strategic investments to support future growth. Turning to the diagnostics and genomics segment, Q4 reported sales were $71.7 million, with reported revenue increasing 7%. Organic growth for the segment was 8%, with foreign exchange having an unfavorable 1% impact. Within this segment, the diagnostics reagents business increased low single digits, and the ACD-branded spatial biology portfolio returned to double-digit growth in the quarter. With a fortified leadership and commercial team, we anticipate improved growth rates in our spatial biology business going forward. For exosome diagnostics, revenue increased 40% as prostate cancer test counts increased almost 70% compared to the prior year period, representing the second consecutive quarterly test volume record. We are encouraged with the volume trend and anticipate continued improvement as our marketing strategy and value proposition resonates with physicians, patients, and payers. Moving on to the diagnostics and genomic segment operating margin, at 15.7%, the segment's operating margin decreased 100 basis points compared to the prior year. The decrease reflects the favorable impact of volume leverage and product mix, more than offset by the impact of foreign exchange, and to a lesser extent, investments to drive future growth. In summary, the growth momentum across our businesses remains strong. Using fiscal year 19 as a pre-COVID baseline, the company's core organic revenue caterer has been consistently in the low teens the past couple of years. As our fourth quarter demonstrated, the biopharma end market is still very strong. We are keeping a close watch on the smaller biotech portion of this end market given the current difficult market conditions to raise new capital funding. However, we see the academic market improving compared to fiscal year 22, and with a fully staffed commercial team now in our spatial biology franchise, we expect our gold standard RNA-scaled products to further penetrate the academic and biopharma end markets with double-digit growth. Add to this the rapid growth we are seeing with our epi tests and a surge in diagnostic kits, and we believe we have many arrows in the quiver that will enable us to at least achieve the same double-digit organic growth rate in fiscal year 23, as our taggers since fiscal year 19. Of course, with foreign exchange rates where they currently stand, we expect a 2% foreign exchange headwind to our reported growth for fiscal year 23. However, this should be partially offset by an anticipated 1% contribution from the recently closed MSL acquisition. Both negative foreign exchange rates and the acquisition of Namacel will likely have a negative impact on our full-year adjusted operating margin for fiscal year 23 by as much as 150 basis points. The impact on year-over-year margin will be more severe in Q1 and gradually become less of a headwind as the year progresses. By the time we reach the end of fiscal year 23, we expect our core margin improvement to offset these headwinds and finish the fourth quarter of fiscal year 23 with approximately 100 basis points of year-over-year margin expansion. Thus, entering fiscal year 24, we're right on track to achieve 40% adjusted operating margin by our target of fiscal year 26. That concludes my prepared comments, and with that, I'll turn the call back over to the operator to open the line for questions.
spk13: Thank you. If you would like to register a question, please press the one four on your telephone. You will hear a three tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. We ask that you limit to one question and one follow up. One moment please for the first question.
spk11: Our first question comes from Punit Sudha with SFB Securities.
spk13: Please proceed.
spk02: Yeah, hi, thanks, Chuck, Jim. Thanks for taking the question. So first of all, congrats on a solid print here despite the China challenges. So maybe, Chuck, given the transition, I think it's, I mean, first of all, it's fair to say that you've done a phenomenal job in portfolio transformation and the top line which is in mid-teens and $1.1 billion, you know, an operating profile that is reflecting a 40% off margin. So that's, I mean, just great to see across the life science tools industry. So, I mean, I wish you weren't retiring, but maybe just walk us through, you know, sort of what went into this decision and maybe talk to us about the overall organization today. I mean, you have a target of $2 billion by FY26. you're pivoting more into cell and gene therapy. So potentially there's a lot to be excited about, but you know, how are you thinking about the overall organization and what needs to happen in order to deliver that target by FY26?
spk08: I think mainly keep doing what we're doing. So we had a hell of a year, 17% growth. We'll be giving our, our usual you know, mild range guidance here for the coming year. And you know, it's, it's, it's, it's starts with a double digit for sure. As you know, by the end of our cycle, 2026, we're going to be at a 17% for sure rate. We need to be there to hit the 2 billion, and we're more confident ever doing that. The team is, you know, over the last almost 10 years I've been here, we've been building it. And, you know, with the retirement of Dave Ender last year, you know, we picked up little guys who has, you know, extremely strong domain knowledge in all the hot areas that we're getting into, cell and gene therapy in particular. So, The bench is set. Of course, Jim's here. Jim's 10 years younger than me, so we've got a long runway to go here with some solid candidates internally, as well as the board will do their fiduciary duty, and they'll look externally as well. They've already talked about that. And we're doing a two-year glide path here, so there's nothing overnight. So by the time I'm out of here, and I intend to be on the board going forward, from then we'll be close to our $2 billion, hopefully, anyway. more I'm more worried about and thinking about, you know, that the person replacing me, you know, when I'm done with my tenure, it'll be a 500, you know, percent, you know, growth five X from when I started. And then personally replacing me has to have that kind of runway. So we can take it from, you know, one half billion and more to between seven and a half and 10 billion. And, uh, the ponds we're in, as you know, we're low and share in all the markets we serve. We see no problem with making this a, a fantastic, you know, company going forward. And, uh, and even stronger leader in the life science tools and diagnostic markets.
spk02: That's great. And then I just wanted to check on Wilson Wolf. That was nearing a run rate off your potential target timeline for acquisition. Maybe just update us with the business there. And with that, maybe Jim can also talk sort of what What sort of leverage ratio, once you have that deal closed, how should we think about the leverage ratio and your cash position and how does that change any M&A prospects for you or as you look at targets out there given the current valuations?
spk08: Well, we've never been in a stronger position for cash and for our debt levels, so we're definitely hunting. But we fully expect to consummate the first tranche of our deal before the end of the calendar year here. That takes a 20%, so for $250 million less the up-from option that we gave them. So they're on track. The growth is steady. 700 to 800 customers, de facto standard. Nothing is impeding that. And we have also $100 million or so for enamel sell as well. You know, Jim can talk about our leverage going forward, but we're certainly going to get a little more cash, but we're sitting in a great spot to do it. And as I mentioned before, this is going to be an excellent year for M&A. It's already taken off pretty strong as you look at our peers across the world here.
spk10: Yeah, Puneet, I'll just add, I mean, powder is not an issue. We're sitting at pretty much net debt zero as of the end of June 30th. Yeah, we just did an MSL acquisition, and assuming we do Wilson Wolf here by the end of the calendar year, but with the operating cash flow we generate in the meantime, we'll still probably be at or less a one-times turn. And as we've said before, we're very comfortable going up to north of three for the right deal. So powder will not be the issue.
spk11: Our next question comes from Jacob Johnson with Stevens.
spk13: Please proceed.
spk04: Hey, thanks. Good morning. And Chuck, I'll add my congrats on all you've accomplished over the last couple of years and on the retirement announcement. I think you're still stuck with us for another seven quarters. On the bioform, you are probably Chuck. But yeah, Uh, on, on the biopharma and market, you know, Jim mentioned, you guys are keeping an eye on, on funding. Can you just talk about, you know, are you seeing any signs of a slowdown from activity in the end market? Doesn't sound like it is biopharma was strong, but, but just any thoughts there. And then, then as we think about your portfolio, if we continue to see financing be sluggish, just kind of talk about how you, how you view that maybe impacting some of your key segments.
spk08: Yeah, sure. Um, I mean, we finished the quarter very strong, and as we've mentioned in the past, we haven't seen too much degradation in any of our markets. We finished in the U.S. biopharma around 30% growth, and academia keeps trickling north. Now we're near high single-digit growth for the quarter in the U.S., better than that in Europe, again, teens. But looking forward, it's kind of hard to answer because looking now from July 1 on, July is kind of soft for us anyway. It is for everyone. it kind of gets, it's different year on year. I do think that this is a year where a lot of people are tired and traveling and taking off for the first time, so I think we're seeing some of that. But we'll see. Right now, we see strong, continued momentum in biopharma. You're specifically asking about biotech. We'll see. But, you know, I think most of our markets are still doing fine. I think you've seen our peers make the same kinds of statements, but But it's hard to really make a statement going into July and August. And, you know, in some of our areas, you know, especially like, you know, exosome, this is when they're the softest time of the year for them anyway. So things like that. But we'll know more in about a month or so. And we're not too concerned yet. I mean, things are, you know, kind of like we usually see about this time of year.
spk10: The only thing I would add there, Jacob, is, you know, keeping in mind that our core business is reagents and relatively low dollar instrumentation that adds to productivity. So if there is any kind of slowdown in biotech, usually it's the high capital expenditure items that will see it first. And as long as they continue to do their experiments, they're going to still need our reagents and our value-add low-cost instrumentation. So the risk, I think, is lower for us.
spk09: Yeah.
spk13: Our next question comes from Dan Arias. with Stifel. Please proceed.
spk01: Morning, guys. Thanks for the questions. Chuck, maybe on ACD, good to see you return double-digit growth there. I have you at right around 10% growth for the year. The long-term CAGR that you outlined at the analyst day is mid-20s. So, you know, for that portfolio, how do you think fiscal 23 growth fits into the trajectory there? And then, relatedly, Jim, how much of the hiring, or Chuck, for that matter, how much of the hiring that you've highlighted as necessary for that business that you've been able to complete at this point?
spk08: Yeah, I can cover both because it's not much change from last quarter in hiring. So we're at full strength, literally, and we're hiring more. I promised a return, and we're there. There's been new leadership for going on six months. Leadership is fantastic. And we're back into teens, and we'll drift our way back to north of 20 here. It's only, you know, 10 for the year because of the, you know, a year ago, a couple of soft quarters, which we had to make changes and we lost a lot of people on the sales front, which we recovered from. We've done other things on issues, like I've mentioned in the past, like giving equity to our salespeople. That's also helped a lot. This is a very technical sale. So, you know, these people we have in the field in this area are very, very strong in their domain knowledge. So it's not an overnight replacement situation. But we've been there for a quarter now at full strength, and the results are showing themselves. So same thing in Europe. I'd say Europe is a little behind the US. And there is a service component to this business, too, that's a longer sales cycle. And so we're busy trying to get that back on track as well, in which we're seeing strong improvements. So our thesis is 24%, I think, we have in the $2 billion model. And we think we're there. Remember, we're still on discovery. This is translational. You know, from discovery to translational, we've got automation coming. We've got new products coming. And we haven't done much to crack pathology yet. And there's a lot of pathology in our future, this platform as well. So we stand behind our guns here saying this is a $300 million kind of business it should be. And, you know, the hit $300 million is north of 24%. So, you know, we're pretty bullish on this platform. It is the largest spatial business out there right now. It continues to be. So we're We understand we're the target, but we're addressing that, and we're trying to get out there and be louder about the leader that we are. I don't know if you want to add any more, Jim.
spk11: Nope, I think that's Wilson. Our next question comes from Catherine Schult with Baird. Please proceed.
spk05: Hey guys, thanks for the questions. And I will echo the earlier comments about you, Chuck. Sad to see you leave, but glad we get a little bit longer with you. I was hoping you could give a little more color on what you're seeing in China. You know, I think after the initial COVID lockdowns, you saw some stocking once customers returned to the bench. So is that something you're expecting to happen in your fiscal first quarter?
spk08: You know, Coming off of COVID, the super weak quarter, we had this amazing surge as all that occurred, all that restocking and redoing experiments, and it kind of surprised everyone in the industry how fast China came back. And we had a record year, and last year we were still north of 20 for the year. We see looking forward, this is still a 25% growth engine, even though now we're north of $100 million in base. I think there'll be some stocking here. I don't think we're out of the woods here on turning it all back on. There are a lot of academic institutions that are not coming back online until after the elections in October. So, you know, there's going to be a continual kind of lift in China. And, you know, we're very bullish. We don't see any concerns there. It's just, you know, it was a soft quarter for us. We all knew it would be. You can't be shut down for two months out of three and not have an impact. And yet we are still near flat. The snapback is coming back pretty well. And, of course, our warehouse was in Shanghai, so it affected all of China for us. And so as long as we keep our warehouse open here, I think that's good news for the rest of how we serve China, the rest of the country. So, you know, we'll build our way back. You know, they didn't get off the hook for another very strong plan for this coming year, and they're very bullish on it.
spk05: Great, great. And I was hoping we could talk a little more about the Namlacel acquisition. You know, what are growth rates and margins there, and how do you expect those to trend over the next few years?
spk08: Yeah, this is a fantastic asset. You know, we've been talking to this team for four years. Kind of we really were waiting until they had their two-laser system, you know, in the market. Now it's selling like hotcakes. I mean, you talk about growth rates, it's a three-digit number, so it's a really good number. They are definitely already in instrument counts that are significant. And as you know, this is a a kind of a best-in-class solution for cell isolation and cell sorting, which affect a lot of markets, not just cell and gene therapy, but, you know, a lot of different applications. And it picks away at flow cytometry as well, and they have ideas in the drawing board about going really dead center at that market as well. So it's a fantastic team, smart people, good IP, already off and running in China, as a matter of fact. Retention is fantastic. Integration is ongoing and started, and again, we've been friendlies for years, so I think we kind of came into this, kind of hit the ground running in terms of integration. It's a strong application based on strong science and IP, and it just kind of fits kind of our thesis for the kind of instruments that we pick up, and we've been excited to get this and we're waiting, and we're thrilled to have that team on board, and You'll see this be a major platform for us in the coming years.
spk13: As a reminder, to register a question, please press the 1-4 on your telephone keypad. Our next question comes from Alex Nowak with Craig Hellam Capital Group. Please proceed.
spk03: Craig, good morning, everyone. I'm just hoping we could speak to the expectations for the overall growth range in the new fiscal year. As we talked about here in the Q&A session, We've got a couple cross-currents. We've got China kind of coming back online, maybe not full strength, but it's recovering. Maybe a more questionable funding environment for the life science project, but then you've still got this high-growth cell and gene therapy business. So just how are you thinking about growth throughout this year, the cadence throughout this year?
spk08: Yeah, so... The plan this year is kind of like last year. We'll start out a little softer and very strong, just like we did. Comps, you know, this is still a tough comp for us in Q1, and then they get a little better for us going forward. But, you know, not that much better. This is an aggressive business, and we're a double-digit player now. We expect to continue. We, as you know, Alex, we don't give real guidance. We don't give quarterly, but we do think that our range this coming year is something, you know, something probably 11 and 12-ish percent up to mid-teens in that range. And we'll keep you posted as we do better. But as you mentioned, with China still being a little softer as we go forward until it fully turns on, which is really more like Q2, and other situations, you know, out there, you know, we'll see. But we have other things that are counteracting these possible slowing. I mean, EXO's lighting up. You guys aren't asking about EXO, but it was in a tremendous quarter with – 70% test growth, 40% organic growth, and over 7,000 tests. We are just killing it. And it's their time, and it's going to be taken off. We're going to an accrual methodology pretty soon here as well, if not this coming quarter. It's time. The reconsideration is going to really allow us to double the TAM for us. We've got 75,000 tests that have occurred out there in the past that are all waiting for a reoccurrence. And so there's a lot of upside there. We just talked about spatial. Spatial's back in the groove, and it's already a $100 million business in that range, so it's material. And as long as our core stays where it is, and proteomics is still strong, biopharma at 30% kind of growth rates, we see an amazing double-digit year ahead of us. And we're not going to get more bullish than mid-teens at this point, but we never do.
spk03: Okay, understood. That's helpful. And then going back to NAMO cell, I think in hindsight here, technique was just clearly lacking a cell separation system. I think that's critical for cell gene therapy and as you outlined for other areas too. But now as you survey the cell gene therapy space, just what other tools, what other products out there could be useful to kind of tuck into the bag and combine with the rest of the portfolio?
spk08: Well, we're getting pretty darn close to a complete closed workflow. There's not much left that we need. I would say cryopreservation would be one area. There are some more cell analysis type tools, and I guess I call them like QC areas and stuff for the process that might make sense. Obviously, we need to capitalize on scale ready, and with getting Wilson-Wolf under the 10 tier, that'll take care of our bioreactor needs, but it may not be the only one. Um, there may be a place for bags out there. Um, and there certainly is the going upstream into the bioprocessing side of all this, which we really haven't done yet. But as we grow, we're going to probably naturally trend that direction. Um, you know, starting first with our proteins and all the things we'll be doing in bulk for customers. Right. Um, yeah. And I think then the instrumentation, you know, we're counting on, on the queue, you know, out of, uh, for Fenius copy with, uh, with, uh, with our scale-ready JV, and if that doesn't work long-term, we'll have to either acquire that or do something different, but we're going to obviously have to have an instrument for leukapheresis to make the system complete, and right now they've been a fantastic partner, and they are, you know, I wouldn't say as strong as Wilson Wolf, but stronger than us right now in proteins. They've been out there a while, and they've got a lot of traction with that platform, and we think we're ready to explode this thing as the market, you know, creates itself, which is really the limiting factor right now is when does this market really come into being? And it's, you know, it's coming more every year.
spk11: Our next question comes from Patrick Donnelly with Citi. Please proceed.
spk07: Hey guys, thanks for taking the questions. Jim, maybe one for you on the guidance, just on the margin side, you know, talking about kind of that exit rate of a hundred bits expansion in 4Q. Can you just talk about how we should think about the ramp throughout the year and then just the key levers, you know, both directions between, you know, pricing, supply chain, inflation, some of the XO stuff, Chuck mentioned the accrual side. So maybe just talk about the moving pieces there and how we should think about margins throughout 23. Sure.
spk10: So they mentioned roughly 150 basis points for the full year kind of decline, driven almost entirely by FX and the NAMA cell acquisition. And if we're going to exit the year with 100 basis points of expansion, that would suggest that we're going to have worse than 150 basis points contraction in the early part of the year. That's because the FX headwinds are more severe when you look in the first half of the year than they are in the back half of the year, as well as The, you know, as Chuck mentioned in his opening comments, you know, we had a very successful quarter in Q4 with regards to getting staff back up and holding on to our key people. And that will have a carryover impact, particularly in the first half of the year where we were way behind in our investments last year. So a combination of that carryover impact of getting fully staffed in addition to the effects will be more severe in the back half of the year. But then as our operational productivity improves throughout the year, that's where we expect to get back to expansion before we exit the year. Hopefully that helps.
spk07: Yep, that's helpful. And then, Chuck, maybe just a quick one on kind of the capital allocation strategy, given the announcement this morning, and congrats on the two years. In the next two years, any plans? Is there any reason you guys wouldn't do deals because you're leaving? Or what's kind of the way to think about kind of this in-between period on the capital allocation side?
spk08: No, quite the contrary. This is going to be a good year for shopping. We're out there hunting pretty hard. And we're in the middle of some right now. We always are. And we'll see what happens. But over thinking two years, I mean, you know, the kind of cash flow we have, I mean, our – our EBITDA two years out is going to be well north of 500, probably 600-ish. And, you know, we're going to have plenty to work with. As Jim mentioned earlier, the powder is strong. So I think we're looking for bigger deals. And this may be a good year to pick up a lot of tuck-in mom and pops, you know, that are worth thinking IPO and they can't now and stuff. So we're looking around those angles too. But, you know, we're open to any and all ideas, I guess. Anything that makes sense for shareholders and makes our company a stronger company, you know, We're five divisions across two segments. I've always said that once we're at a $5 billion kind of revenue rate, this will be a 10-division company, all synergistically connected across these 10 divisions, and the science being all life sciences. We see no change in our thesis, and we've never been more bullish about our capital allocation, and it is primarily M&A. Don't look at us as thinking about major buybacks or dividend increases.
spk11: It's M&A first. Our next question comes from Paul Knight with KeyBank. Please proceed.
spk00: Hi, Chuck. Congratulations on the change. It sounds like it will be a while, so that's fabulous for you. The Protein Simple was one of the earlier acquisitions you did. Looking back on it and looking forward, what are – your thoughts on Protein Simple in terms of share they have today and, you know, runway ahead on that particular business that, you know, you obviously very instrumental in getting kind of back and growing and transforming that part of the market.
spk08: Yeah, sure. Well, it's going back six, seven years now, but, you know, we did that deal pretty quickly. It was on the eve of an IPO and we snatched it. And it was a, $50 million business back then, not making money, and today it's a $250 million business making over 30% margins. And it's an instrument business. It's got great IP. We have other things we can add to the platform, we think, and we have runway across all three major platforms that we've talked about, you know, a lot. I mean, everything from the Ella platform, which we're completing within a year, a 510K process, 1345, a brand new facility, a manufacturer that can more than triple the output. So that'll be a sleeper. That'll be in pretty much point-of-care diagnostics in five years, as well as the discovery it's in now, which is, you know, crazy growth. Simple Western is still an amazing platform with way more ahead of it than behind of it. And biologics just keeps surprising us. I mean, seven quarters in a row, we're at 30% growth. And, you know, protein purity, capsid testing, HPLC share-taking, this thing has got lots of runway as well, more than we ever thought. So, you know, I look at it and I leave in two years or move on to the other board positions and stuff and thinking about here, you know, it's going to be, you know, 400 ish kind of million dollar business unit. And there's no reason why this can't be a billion dollar unit someday. And it'll have other other, you know, instruments will add to the platform over time, too. I'm sure that so. If it was spun out right now, obviously it'd be really valuable. So, you know, I think we paid $300 million for it. So it's been an amazing return and probably the biggest chunk of our overall value creation over the last, you know, nine and a half years I've been here, which is roughly $2 billion to I think today we're in the $15 billion-ish range. We were $20, but we're all seeing a little setback there. But, you know, we're very positive because we see as the market finally – I guess, bottoms with conviction that the Fed's done, et cetera, et cetera. There will be a flow to quality first, and you don't find better quality in an asset than ours.
spk00: Yeah, and my last question, Chuck, would be on exosome diagnostics. That seems to be getting traction. Would you be an acquirer of diagnostic assets in the future, or what are your thoughts on the DX sector?
spk08: Yeah, well, as you recall, we've been very, you know, very bold in our statements about what we want to be in. We don't want to be in diagnosis across the board. We really don't want to be in infectious diseases and these low-end things that are hard to make money and lots of competition, no bearish entry. But, you know, we're a company that's focused on, you know, oncology, curing cancer from a research sense as well as neuroscience and diagnostics that fit in those realms because they leverage our assay expertise, you know, 40 years worth of experience, that's where we want to flow. The Assuragen team, you know, really came on and helped us immensely. This team is amazing, and they've just lit it up there. It was the right idea to put this business unit in charge of professionals that have over a decade of experience in diagnostics. And I'm not going to say we won't pick up other assets, but if we do, they're probably going to be, you know, closely related, you know, and in areas where there are good returns, need for heavy, difficult science, you know, which usually means, you know, going after a solid tumor or something in oncology, the difficult areas. And, you know, we'll see. There's lots of opportunity here, and, you know, we'll never say never. Right now, we're kind of focused on, it's a new division with the merging of a surgeon with exosome, and the growth has been, you know, wonderful, and it's lighting up, it's accelerating, and so we're going to ride that horse here for a while, and we'll see what happens. But, you know, we're We're still focused on making that a major, major platform for the company. And I've told you guys more than once, if you look out five to 10 years, this is one of the few things we can say in our company that it should be a billion dollars or more.
spk11: Mr. Comet, there are no further questions at this time.
spk13: Please continue with your presentation or closing remarks.
spk08: Well, we're on the hour. Anyway, thanks for the questions. And it was a great quarter and the end to a great year.
spk13: best ever for us and we hope to give you an even better one this coming year so talk to you soon thank you that does conclude the conference call for today we thank you for your participation and ask that you please disconnect your line have a great day everyone
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